4 min read | 18 Mar 2022
That’s why a record number of Aussie homeowners, who’ve been sitting back and smiling as the value of their homes have gone up and up and up, have doubled down by buying a second property, not to live in, but as an investment. How’d they find the money? They took advantage of low interest rates to refinance their existing loans, redirecting their money, so they could pay off both properties at the same time, and make capital gains off them both at the same time too. If you’re an owner-occupier, and you’ve seen the value of your home increase, you’re in a great position to repeat that success by refinancing your home loan as well.
As the latest ABS figures show, lots of people see refinancing as a great way to build wealth by buying an investment property. It involves getting access to your equity – the proportion of your home you own outright – by refinancing your existing mortgage with a new one. The idea is to then transfer that equity and use it as a deposit on the investment property. And the purchase shouldn’t cause much additional financial stress because the loan repayments should be covered by rental income. And while that’s happening, it’s going up in value, so one day you’ll be able to sell it for much more than you bought it. Win win. Other benefits you can get out of buying an investment property compared to other types of investing include:
Low volatility – property is relatively stable compared to shares and other investments
Tax offsets – a lot of property expenses can be claimed as tax deductions
Bricks & Mortar – instead of being a load of theoretical cryp(to), your investment would be a physical asset that’s understood and valued by an established market
Relatively uncomplicated – some investment products require specialised expertise, and that’s still no guarantee of success. But property, as demonstrated by millions of profit-gaining Australians, is a lot more straightforward.
Even if you’re not looking to invest in more property, there are good reasons to refinance your mortgage:
Moving to a better interest rate to lower your repayments and pay off your loan sooner
Switching your interest rate type (eg. from variable to fixed)
Consolidating debts into a new lower-rate home loan
More or different or even fewer features
If you think that refinancing to invest in property is a great opportunity, you’re not alone. That said, you should refinance when it makes sense for your personal situation, not because other people are doing it or because the media is speculating about interest rate movements. You should also be aware of the additional costs and requirements. For starters, to get finance, a deposit usually needs to be at least 20% of the purchase price of the investment property, so your equity in your home would have to be worth at least that much. To calculate your current equity, subtract the outstanding balance of your loan from the market value of your home. There are often costs associated with switching loans to refinance. This may include an establishment fee for the new loan, as well as discharge fees for your existing loan (Athena doesn't charge either of these!). If you have a fixed rate loan, you may be charged break costs on that loan. As with any property purchase, you’ll need to factor in paying stamp duty, legal fees and other costs to buy, plus ongoing costs such as council and water rates, property maintenance fees and potentially land tax. The assumption with an investment property is that the rental income will keep covering the loan repayments. But it’s pretty much guaranteed there will be times you don’t have a tenant, so make sure you have a buffer set aside to cover periods when rent isn’t coming in. And always be aware there’s the possibility the investment property won’t grow anywhere near as much as you thought it would, or could even drop in value, so it pays to really do your homework.
It’s actually very easy with Athena. Whether you landed on this page because you typed “refinance for investment property” into your search bar, you have multiple properties you want to refinance, or you just want a better deal than the loan you’re on now gives you, we can help. If you have some specific questions about refinancing, why not visit our FAQs page now? Or if you feel ready to take a first step forward, pop your details in here. It'll only take a few minutes to start the ball rolling.